Google Looks to Beat Music Rivals

By Robert Budden and Robert Cookson in London

Saturday, 23 Feb 2013 | 4:45 AM ETFinancial Times

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Tomohiro Ohsumi | Bloomberg | Getty Images

Google Nexus 7 tablet.

Google is in talks with big music labels to launch a streaming service to compete with companies such as Spotify and Deezer, as it looks to expand into one of the fastest growing areas of the music market.

The discussions reflect the technology company's ambition to extend its influence into new business areas and diversify away from advertising, which accounts for 95 per cent of its revenues.

The impending launch, which would have access to a library of millions of songs could put pressure on Amazon and Apple, which both run established download stores but have yet to enter the commercial music-streaming market.

Google already plans to launch paid subscription services on YouTube, the most popular site among teenagers to sample new music, and has also expanded into travel, price comparison sites and a mobile-payment system.

Google launched a music download store in the US in November 2011 and has since rolled it out in five European countries.

It is expected that the streaming service will offer a subscription model as well as free unlimited access to songs, supported by advertising, mirroring models adopted by Spotify and Deezer.

In the first half of 2012, premium and advertising-supported streaming revenues reached $468m or 16 per cent of global digital music revenues, according to IFPI, which represents the global recording industry.

Ed Barton, an analyst at Strategy Analytics, said Google could install its music streaming product on its Nexus range of mobile handsets and tablets. It could also include its service in Android, its mobile operating system, as Apple does with iTunes on its iPhone.

But analysts noted that competitors have so far failed to dent Apple's leadership in music downloads and Spotify's in music streaming.

Advertising executives also speculated that by scrutinising consumers' listening habits, Google could build a valuable database for advertisers.

"It will be another piece of the puzzle for understanding consumers," said Christophe Cauvy, European head of digital at advertising agency JWT. "This will be very interesting for brands where purchases are emotionally or status driven."

The impending launch signals a potential thawing in Google's relationship with the music industry. Music publishers such as Warner Music and Universal Music are concerned that search engines promote piracy.

The Recording Industry Association of America, which represents US record labels and distributors, this week attacked Google's search engine for linking to pirate websites, alleging that the US group had broken a promise made six months earlier to reduce the prominence of such sites in its search rankings.